Comment: Netflix, Tesla and Wall Street’s record highs

Comment: Netflix, Tesla and Wall Street’s record highs despite revised earnings and rate cut expectations – by Kyle Rodda

 
“Wall Street added to its record highs overnight. It’s challenging to pinpoint what’s driving the dynamic. It could be purely technical, with above that milestone level attracting buyers. Itcertainly sends a bullish signal. However, if you crudely break down the three typical drivers of stock market valuations – earnings expectations, interest rate expectations, and implied volatility – it’s only a drop in implied volatility that can be said to be a tailwind for the market, while, at the margins, interest rate and earnings expectations are moving against it.Nevertheless, equities are higher despite the markets pricing out rate cuts and revising lower earnings expectations.

Netflix shares surged in post-market trade following the release of its Q4 results. EPS came in a fraction below expectations at $2.11 (Est. $2.19), but subscriber growth smashed it out of the park at 13.12 million net additions, and earnings guidance for Q1 beat the street at $4.49 (Est. 4.09). The result was the strongest since the stay-at-home boom at the start of the pandemic and shows the company’s successful execution of its new pricing and product segmentation strategy.

Meanwhile, Tesla reports its Q4 earnings after Wall Street’s closing bell on the 24th of January, 2024. Tesla is poised to post a drop in earnings growth in Q4. Analysts estimate EPS will contract by 31% to $0.74 compared to the corresponding period last year. The drop comes amidst higher costs, eroded margins, and production delays, with revenues forecast to rise modestly to $25.9 billion.

The EV maker has struggled with more challenging macroeconomic and operational conditions in the past year as vehicle demand slows amid a slowing economy and supply-side disruptions linger. Greater competition has also impacted earnings growth amid price cuts in 2023 to protect market share from legacy car manufacturers.”
 
Kyle Rodda is Senior Market Analyst at Capital.com